Q2 2023 Tandem Diabetes Care Inc Earnings Call
Thank you for standing by and welcome to Tandem's second quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask.
A question. During this session you will need to press star one one on your telephone to remove yourself from the queue. Please press star one one again.
I would now like to hand, the call over to executive Vice President and Chief Administrative Officer, Susan Morrison. Please go ahead.
Thanks, Hello, everyone and thank you for joining tandem's 2023 second quarter earnings call.
As a reminder, today's discussion will include forward looking statements. These statements reflect management's expectations about future events product development timelines and financial performance and operating plans and speak only as of today's date.
There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward looking statements.
A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward looking statements is highlighted in our press release issued earlier today.
And under the risk factors portion and elsewhere in our most recent annual report on Form 10-K quarterly report on Form 10-Q and in our other SEC filings, we assume no obligation to publicly update any forward looking statements, whether as a result of new information future events or other factors.
Today's discussion will also include references to a number of GAAP and non-GAAP financial measures.
non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods.
Any non-GAAP information presented should not be considered as a substitution independently or superior to results prepared in accordance with GAAP.
Please refer to our earnings release quarterly report on Form 10-Q, and the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure.
Today's call participants include John Sheridan, our President and CEO and Lee Vossler, Our executive Vice President and Chief Financial Officer. Following their prepared remarks, we will take questions. Thank you in advance for limiting yourself to one question before getting back into the queue, John you're welcome to begin.
Thanks, Susan and welcome everyone to today's call.
Reflecting on Tennant's performance in the first half of the year and the second quarter in particular, I am proud of our execution across the business, we achieved our sales expectation, while demonstrating operational improvement as we exceeded our profitability targets and return to positive adjusted EBITDA.
We also made exceptional progress with our new product innovations by starting the rollout of Tinder source.
Caring for the launch of two new sensor integrations and most recently, reaching the exciting milestone of FDA clearance for tandem Obi.
With these four new products, we are expanding our reach into different customer segments of the market beyond where we operate today.
Providing additional choice to new and existing customers and how they manage their diabetes and demonstrating our excellence and delivering digital solutions to optimize care.
This sets us up for another exciting period in the company's history.
When we first introduced control IQ to the market.
These new products are also important in fulfilling our vision of having a unique portfolio of devices that meet the diverse needs of people living with diabetes and reinforces our leadership in automated insulin delivery.
We anticipate that this wave of innovation may create turbulence in the overall market in the near term too.
To ensure that we maintain the highest level of customer satisfaction during the busiest months of the year as we previously discussed we will be scaling these launches throughout the second half of the year and into 2024.
Customer awareness and excitement as quickly building and this may impact the timing of purchasing decisions, particularly as it relates to tandem movie as customers way access to new products against the reset of deductibles in January .
With this backdrop, we have introduced new promotional pricing for our tandem choice program for the remainder of the year.
The program now provides customers purchasing a new T Slim X to access to tandem mobi once it becomes broadly available for $199.
Rather than the $999 it was before clearance.
This helps provide customers seamless access to current technology and may reduce the piloting dynamic we've seen historically with new product launches between the time, the FDA clearance of the product and its availability.
Having said that it's difficult to predict the impact this will have on our sales for the remainder of the year.
For that reason and in combination with an increasingly competitive environment worldwide. We feel it's prudent to reset our 2023 guidance with a low point for expectations and a starting baseline for 2024, while we focus on driving the business by.
By doing so we are establishing a path for tandem to deliver sustainable growth driven by our market leading innovation pipeline.
As we prepare to expand our technology offerings. This fall we are building on our strong reputation and decades of experience offering high quality diabetes solutions and services.
This was evident in the second quarter as our T. Slim X two continues to stand out as the number one rated automated insulin delivery system in terms of overall customer satisfaction.
This was repeatedly reinforced as I spoke directly with health care providers at the recent American Diabetes Association scientific sessions that took place here in San Diego.
Provider spoke to the importance of their patients having options for wearability, the benefits of pumped attach ability and how different infusion sets materials and cannula insertion angles impact their patients comfort and user experience.
These comments underscore the importance of recognizing that people need options and how they were and how they use their AI systems and reinforce our strategy of enabling our customers to personalize multiple aspects of that system.
Another highlight was the positive reaction to demonstrations of tandem source at our booth keep in mind. This is our global data management application that was designed specifically to keep with clinicians in mind.
It provides a central location and comprehensive reporting to view a critical patient data. So they can spot trends and put these insights and to use with their patients.
Again rolling it out in the United States in June and we will continue to progressive launch in the coming months with plans to deploy globally on a country by country basis thereafter.
For Hcp's 10 of source becomes even more meaningful with tandem movie, which offer smart phone control and we will be continuously connected to the cloud by a mobile app for.
For customers, it's a platform to see important therapy data and we plan to build around this in the future by adding experienced enhancing features for our customers that streamline supply reordering and new feature trainings.
The AIA conference also reinforced that Theres currently a high level of activity in diabetes devices.
And that related pressure is likely to continue as new offerings launched both in the U S and internationally.
In the second quarter, we began hearing more from our distribution partners outside the United States about new pump entrants only some of which we have experienced selling against.
Even with an anticipated increase in competition or longer term opportunity outside the United States is meaningful.
Our T Slim <unk> II with control IQ has been shown to deliver immediate and sustained benefits in all populations and we are still in the early stages of building market awareness internationally.
In the near term, we're cautious that external pressures may increase in advance of our new product launches the first of which will be new CGM integrations.
T Slim X two integrations with <unk> <unk>, seven and freestyle Libre two sensors are on track for a scaled launch beginning in the United States. This fall.
We anticipate that <unk> II will be the first FDA cleared pump that will offer a user options in CGM sensor integrations.
Choice of more than one CGM is not only a differentiator is the true realization of interoperability and empowers users to make the best sensor decision for their needs and preferences.
We want our customers to have the benefits of the latest CGM technologies and being first to market with these new Cgm's is evidence of our commitment to enable access and lead in systems integration.
It takes a lot of collaboration and coordination to watch an integrated CGM systems.
Thanks, Dex com for their continued partnership and Abbott for their new partnership as we bring the benefits of our AI systems to even more people living with diabetes.
In the United States, we are planning for <unk> sentiment integration to be broadly available in the first part of Q4 and freestyle Libre two integration to be broadly available in the middle of Q4.
These will be followed by international launches with <unk>, seven and freestyle Libre III.
The top software updates for these integrations will be offered to all in warranty customers for no charge and can't be completed from a personal computer.
Turning to our next new innovation tandem Adobe as the world's smallest durable automated insulin delivery system redefining durable pump miniaturization <unk> is leading the way in creating a whole new category of devices for insulin therapy, I am, particularly proud of this clearance as its our first expansion to our family of pump hardware offerings and as an.
<unk> to bring the benefits of our technologies to a segment of people living with diabetes, who otherwise would not likely choose to adopt pump therapy.
Already we are hearing from future customers, who plan to <unk> for its discrete small size multiple wear options iOS control and our number one rated PID algorithm.
In the second quarter nearly two thirds of our sales leadership reported that they are experiencing some level of new customer pausing and making their purchasing decisions to await the availability of mobi and reported that this dynamic was even greater with our own renewal customers.
This enthusiasm has grown even more following FDA clearance and thousands of people have signed up on our website and through our call center for more information on <unk> availability.
And to kick off our scale launch of <unk> with a limited release in early Q4, followed by broad availability in early 2024.
Launching a new pump platform and the associated physician and customer education that goes along with doing it right. It takes significant time from our talented sales and clinical team the.
The fourth quarter is a period in which their time is already in high demand due to the seasonality of our U S business as they work to help customers maximize their insurance benefits before the typical reset at the end of the year.
This is why making <unk> available through a scaled launch is even more important during this period.
Turning to our pipeline beyond these near term offerings. We are continuing development work for our hardware portfolio, which includes the <unk> III an extended wear infusion set of <unk> cartridges and infusion sites feature for Mobi and Siggi are durable a patch pump we.
We are also very active clinically.
Enrollment for a study of people with type two diabetes using control IQ, which includes the randomized control arm began in the second quarter. We are also preparing for a clinical study for steady set our extended wear infusion set and the first in human trial for <unk> to begin in the fourth quarter of this year as.
As you can see we are executing well and are confident that we have the most exciting product portfolio and insulin therapy management, it's part of our commitment to relentless innovation.
<unk> customer experience and operational excellence, which are mission driven building blocks of our company I.
I would like to thank our employees for their hard work in delivering on each of these in the second quarter.
Team is 402 and passion is how we are navigating 2023 and positioning <unk> for success.
With that I'd like to turn the call over to Lee to provide more information on the quarter and our guidance expectations for the year.
John .
As a reminder, unless otherwise noted the financial metrics I'll be discussing today are on a non-GAAP basis.
Creations to GAAP can be found in today's earnings release as well as on the Investor Center portion of our website.
We exited the second quarter with a record install base of nearly 440000 people worldwide using our chief from X to insulin pump, representing 16% year over year growth.
Our second quarter performance was in line with expectations generating $198 million in worldwide sales with over 29000 pump shipments.
Mike the first quarter comparisons to 2022 do not adequately portray our continued operational execution, particularly as it relates to our sales outside the United States and advancements in our product pipeline.
In the U S sales for $145 million in the second quarter with pump shipments increasing sequentially by 12% to 19000, when compared to the first quarter.
Well over half of our pump shipments in the quarter continued to be driven by customers new to tandem and it sort of easier customers remains almost evenly split between MDI and competitive conversions.
We continue to see strength with renewable shipments, which have increased each quarter as a percent of total shipments from our consistent capture rate on an increased number of warranty expiration.
We have already renewed more than 60% of our 2022 exploration with a pace to achieve 70% more quickly than years past, reflecting the high satisfaction and loyalty of our customer base.
This puts our installed base at any warranty customers in the U S had approximately 305000 driving growth in our supply sales by 10% compared to the prior year.
Turning to our operations outside the United States, we generated $53 million in sales in the second quarter shipping 11000 pumps and growing our installed base more than 20% year over year to nearly 135000.
Now completed the transition to our European distribution center, which will support approximately 70% of our U S sales going forward.
We experienced approximately $2 million in sales headwinds in the second quarter related to the transition mostly impacting supply sales.
This operational implementation is very meaningful to the business as it provides relief to our distributors from the supply chain challenges they were facing and allows them to react more quickly to fluctuations in demand.
It also creates efficiencies within our own operations and provides better visibility into our true business growth, which will more closely align with our reported financial results.
Our U S sales year to date of $92 million were impacted by approximately $20 million in total headwind associated with the scale up with the new distribution center with roughly two thirds attributed to supply sales.
Turning to margins our gross margin was 52% of sales in the second quarter.
An improvement of nearly two percentage points year over year.
We have now consume nearly all of the high cost raw materials that cleared in 2022, which was the single biggest contributor to our gross margin improvement year over year.
The impact in the second quarter was much more modest than quarters past at less than 1% of sales and we do not anticipate any material future impact.
We also improved our gross margin by more than two percentage points from the first quarter increased to 51% of sales in the second quarter versus 49% in the first quarter with favorable product mix driving the majority of the gross margin improvement.
We also outperformed our adjusted EBITDA expectations, returning to profitability at 3% of sales in the second quarter.
When excluding certain unique items in the first and second quarters, such as IP R&D at facilities consolidation charges, we improved our operating expenses by $3 million from the first quarter effectively balancing investments in R&D and marketing against cost management efforts.
In fact, R&D has been our greatest area of spending growth in recent quarters as we have invested in driving and accelerating our product pipeline.
The incremental operating costs from our capillary biomedical and Ams medical acquisitions and supported this effort represented approximately 3% of sales in the quarter compared to no cost in the prior year.
In all we are proud that we met both our U S and O U S X the expectations for the first half of the year and this unique and challenging environment.
The rapid waves of innovation that we will be introducing in the next few quarters positions us well to drive an inflection in growth in 2024 and beyond.
As John discussed this comes with a greater level of unpredictability in the near term at the timing of our new product launches may impact sales as well as recognizing increased competitive noise worldwide.
With reduced visibility and due to the year traditionally being backend loaded from seasonality, we feel it is prudent to reset our sales guidance for the remainder of the year.
We are confident that even with these unusual demand dynamics at a minimum we can achieve worldwide sales at $190 million in the third quarter and $785 million for the full year.
For the U S. One of the greatest variables is how the timing of mobi availability FX customer purchasing decisions guidance reflects our confidence that even with this uncertainty our pump shipments in the back of this year will be in line with the first half of 2023.
This results in full year content to play sales of at least $575 million.
Seasonality is still expected to positively influence our fourth quarter with the expectation that it will represent the strongest quarter for pump shipments in the U S. While Q3 is expected to step down modestly from Q2.
Factoring in these dynamics Q3 sales in the U S are expected to be at least $135 million.
Outside the U S. We are adjusting our full year expectations to $210 million with Q3 sales of at least $55 million. This reflects improvement in the second half of the year. Following full implementation of our distribution center in Europe and seasonality in the third quarter balanced with the market <unk> approach to potential impact from competition.
Joining upon our experience in the U S last year, we think this aligns with our changing guidance and considered the uncertainty for some new entrants that we do not have as much experience selling against.
As a result of these changes in sales expectations, we are revising our gross margin expectations to 51% for the full year also we expect to remain adjusted EBITDA positive in the back half of the year, but we are revising our expectations for the full year to at least breakeven.
This includes the revision to our recurring noncash P&L charges, which are expected to be slightly lower at approximately $110 million of which $95 million is associated with dot com and 15 million with depreciation.
Considering this reset in our overall 2023 sales guidance. We feel it is also important to calibrate early for 2024.
We will learn a great deal in the next six months that will better inform our thoughts on growth next year, particularly as we scale the launches of multiple new products.
Until that time, we would like to set expectations for baseline 2024 sales growth, starting at 10%, which implies more than $860 million off of our revised 2023 sales guidance and we will continue to provide updates from there.
We remain confident in our ability to achieve the goals. We set a few years ago to reach 1 million customers, but are going to withdraw the timing of our longer term targets for now as we evaluate the speed of uptake for these near term product launches.
Our goals for achieving 65% gross and 25% operating margins also remained unchanged and are largely correlated to the adoption of our tandem Ob and steady set launches.
To be clear the actions, we are taking today with guidance Archer risk reduced external expectations, our conviction in <unk> ability to lead in diabetes management remains high, especially with the most comprehensive portfolio in our space.
By doing so we'll be executing on our mission to bring the benefits of tandem technology to hundreds of thousands more people living with diabetes worldwide.
With that I'd now like to ask the operator to open the call for questions.
As a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to remove yourself from the queue. You May press star one again.
We ask that you limit yourself to one question and one follow up please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Steve Lichtman of Oppenheimer <unk> company.
Steve you there.
Yes, sorry, I was on mute I apologize hi, guys, Hi, Brian Hi.
Lee you mentioned Q2 coming in line with expectations as we think about what's embedded in the back half.
What is assumed in terms of the upgrade program.
And potential benefit from that and how does that get recognized.
Patient is do take advantage of that program.
Sure. Thanks for the question Steve So.
The tandem choice program.
The rest of this year youre going to see what looks much like what you've seen in quarters past switches on a GAAP basis, we will make adjustments.
And part of that adjustment is based on our estimate of how many people will take advantage of the program in the future, but there is still no election this year and so.
So we won't have any change to that type of accounting, we will still report our non-GAAP sales on the basis of our normalized pump shipments, which would be comparable to how we were reporting before the tandem choice program.
And so when we thought about from a guidance perspective.
We didn't particularly factor in that it would provide benefit or that it would offset any of the potential pausing. So.
At this point the guidance with that was the baseline level in mind off of which we think we can achieve our overachieve.
Alright, and then in terms of the back half and in your initial comment on 24.
Or are you factoring in the new CGM partnerships, including the obviously the new partner with Libre.
Yes.
The O U S launches next year. Thanks.
Sure. So first of all I'll say that we're super excited about the opportunities that provides to us and we believe that that will contribute to an inflection in growth in the future at this time with the limited visibility that we have in the market for the next two quarters as we work through these new dynamics, particularly with the <unk> launch and the <unk>.
Many of the availability in the interim period, we're not factoring in any particular upsides for those opportunities and so that's something that we could look forward to as being an opportunity to overachieve our minimum guidance.
Thanks, Lee I think we also have two and a half quarters to basically see how these products perform and that's going to inform us as.
As we enter 2024 with better understanding of what the growth rate might look like.
Thanks, Sean.
Thank you.
Our next question.
Comes from the line of Matt mixing of Barclays.
Hey, thanks for taking the questions.
So I wanted to ask.
Sounds like this quarter shaped up to be kind of very much.
Almost.
Put on with kind of what you were expecting with the street was expecting and I'm just wondering with the adjustments for those.
With the revenue adjustment.
Is that is that you are feeling that it came in.
Kind of very much as you expected.
I'd love to just get whether that's your assessment and then.
Quick follow up on the <unk>.
Q3, and some of the drivers there.
Sure. Thanks for the question, so not only say second quarter, but first quarter. Both came in line with our expectations from a sales perspective, and so we were well on track to achieving our goals for the year, but with the new dynamics of the <unk> launch. This is change in the guidance is not so much about how we got to where we are today, but it's what we're looking at going forward.
And it's just this limited visibility that we have to how much pressure that the anticipation of maybe might cause in the market in the near term and so we're just being very thoughtful about that and reducing the risk that was potentially in the back half of the year pretty substantially and so back to thinking about this.
Guidance level that we set as really a low point or minimum baseline.
That's great.
Obviously, congrats on the <unk> approval and that does certainly nice to get that out of the way and so talking about those.
Those things, reaching the market and on that front.
If the first half was kind of like very much in line with your baseline guide excluding these other.
Other new product launches and maybe maybe even including some of the some of the effects of those things sort of circling around as you've talked about in other words people wanting to maybe wait or pausing here, a little bit and if all of that was very much in line.
Okay.
The Q3 commentary that you have.
Does that.
Maybe maybe if you could elaborate a little bit on how much of of the beginning of these launches as included in Q3 or at this point the way Youre thinking about guidance as.
These really don't.
Affect our numbers or the way, we talk about guidance until Q4.
Yes.
That's a clear question it would be super helpful color.
Yes, I think I understand the question and so the way to think about the launches.
Scaled approach here, where do you think is a measured launch across the court amongst in the quarters and so for third quarter in particular.
He said, we're not factoring in upside from any of the new opportunities but.
There isn't going to be much happening in the third quarter than heavy marketing and availability will be.
We will have increased by the end of this year and so as John said, a few minutes ago that gives us time to evaluate what's happening in the market to better understand the reaction to the new products that are starting right now versus people, who might still be waiting from Ob and then we can give more color clarity in a quarter or two on how those are trending.
Okay. Thanks, so much.
Sure thing Matt.
Thank you.
Our next question.
Comes from the line of Chris Pasquale of Nephron research.
Thanks, Lee I wanted to go back to the guidance adjustment and what you guys are factoring in today.
You didn't have visibility on that at the beginning of the year, because if I go back and look I mean, the timing of the <unk> approval seems.
It seems pretty much in line with what you were assuming back when you first guided for 'twenty three so why only now factor in this pause and why the big shift in how you think the back half of the year is going to play out.
So I'll just say that one of the things that we've been pleasantly surprised by is just the excitement.
For mobile and its relatively short period of time, but since the FDA approval, we've had a couple of conferences and <unk>.
Significantly exceeded our expectations and when you talk to the sales force.
Two thirds of it to say that they've already experienced pausing in the second quarter.
So I think this is something that.
It's more than we anticipated and I think it really does put us in a position where we are.
It's difficult to anticipate what the revenue is going to be like in the back half because of Ob pausing also <unk> seven and.
Libre Pausing and then there is some competitive dynamics as well so it's just I think rather than.
I try to guess, we're just taking a conservative approach with guidance and we're just trying to risk reduce public expectations.
Have a great deal of excitement and confidence in where we're at and we think that these new products are certainly going to drive.
Fantastic 2024 for us and the good news is that we are.
The only unpredictability or uncertainty that was really the FDA was that Clinton has gone we have complete control.
We're really seeing great momentum building within the company and these things are happening in a matter of weeks.
Yes.
Thanks for that John and then maybe I'll just piggyback on your comment about 2024.
2023 features significant headwinds on a couple of different fronts, we international distribution change now the anticipated pause in pump orders as people wait for <unk> to be available. So just from a math perspective that would seem to make 2020 for growth.
Above trends year, given the baseline.
I don't think that you would frame 10% growth is kind of above what you might expect the company to do long term. So help us understand why that's the right number even before factoring in the impact of things like the new CGM options et cetera.
Okay.
Sure. So clearly we would not ordinarily be giving any indications on 2020 for this early in the year, but we felt it's important.
Based on the changes that we're making to the 2023 guidance to make sure that we're managing expectations appropriately. So I would say this is a first.
We will come with the first path minimum baseline against them for the way to think about next year before any of these even become available or are added to the opportunity and so we still feel very convicted about the high growth. We can achieve with these new products on the market that we felt like we'd be better able to get that kind of visibility. After we've seen the uptake of them in the next couple of quarter.
And the traction that we get but with the change in 2023. It was very important to make sure. We help people understand where to start with 2024 at this time.
Okay. Thanks.
Okay.
Thank you.
Our next question.
Comes from the line of Matthew O'brien of Piper Sandler.
Hey, this is bill on for Matt. Thanks for taking our questions just for starters on the competition commentary I was curious if you could parse that out a little bit further between perhaps the patch pumps on the market and the two pumps and as it relates to the recent 700 MG launch is there anything changed in your view on the launch of that.
Yes.
No I don't think so I think when you what we have talked about in the first half is that we've seen we've seen continued pressure.
But things have stabilized and I think that that's predominantly the patch device and so.
I think we performed quite well in the first half and.
In spite of that pressure, but there are new devices coming to market right now and while we don't think that the impact of these will be nearly as meaningful as what happened last year. There is obviously there always is some.
Turbulence, when new products come to market and so I think we expect there's going to be some modest turbulence not nearly what it was like it was last year.
And we think we can manage through that I think the real thing thats going to happen in the back half of this year is that <unk> is going to cause.
I think Bobby is going to be the real driver of deposit and I think thats really what this reset is about certainly.
The other two devices that are coming to market will have some impact, but it's really all about mobile.
That's helpful. Thank you and to that end when we think about that pausing and looking towards 24, how are you thinking about the full market release of <unk>, how quickly will those pace.
Patients waiting on the sidelines look to jump in and I guess, what I'm trying to get at is just overall cadence with that 2024 number you put out there.
Yes.
You said in the prepared remarks, what we plan to do as early in the fourth quarter, we will move into a early access program. We will have hundreds of people using it and we have a an approach internally, where we have a scaled and measured launch and so we're going to be cautious at first to make sure that the system performance that we expected. This is just something that I think that is.
It's the best thing to do for the company our patients.
And I think that as we grow grow in confidence we would expect to.
Move forward with a more direct to commercial launch in the early part of 2024. So this.
This is just typically the way it goes and so I think as 2024 comes upon US we will start off and gradually increase the ramp clearly in the meantime, we're going to be focusing a great deal on training to physicians and their staff as well as advertising marketing and just ramping up the.
The messaging, but I.
I think it is going to start aggressively in 2024.
Thanks, so much.
Yes.
Thank you.
Our next question.
Comes from the line of Matt Taylor of Jefferies.
Hi, Thank you for taking the question.
I was hoping that you could maybe put the positive dynamic that youre expecting or forecasting here in contact and contact with other positive that you've experienced or that competitors have experienced greater than less and if you can quantify it and then I guess, if you are aggressively going to be launching in 2024.
Why wouldn't the baseline to be more than 10%.
Okay.
Sure. So I'll give you two examples I would say on the extreme ends of the spectrum in terms of pausing that we've seen before the first one was back in 2016 with the approval of the <unk> hundred 70, <unk> and it would create a very significant market disruption for a number of quarters.
We also saw it again with control IQ in the fourth quarter of 2019 when we.
We received approval.
And even with the marketing and understanding that it's a free software update we still saw people wait they waited until it was available on the pump and so those were extreme examples.
Severe level of pausing versus a modest level of policy.
So we'll be as interesting as John mentioned on the enthusiasm we've heard in just a few short weeks since approval without even at a heavy marketing campaign out there yet with very high and so we're trying to be considerate of what that might do in the next couple of quarters and we hope that the tandem choice program gives people a pathway and helps people will be able to move forward with purchases now.
But we can't be certain at this time.
What we're doing is we're taking an approach of reducing the risk as much as possible on the numbers and I would say the same for 2024, so while we gather this information and understand better the uptake the interest and the timing. We don't want we don't want anyone to get ahead of us and so we thought it was prudent to reset it at a minimum level that you could think of as a base.
Fine and then you could see the opportunities from the new products is upside from there.
I would just add that the second half of the year is where we get majority of our revenue, particularly in the fourth quarter and the dynamic of just having a new device in the market and the Salesforce just out selling to deal with the deductible reset.
Creeps up.
Our variable I think that we really haven't seen before.
And so I think that does just in addition to having a new product. It's also the timing of it creates.
Certainty as well.
Okay, Alright, thanks, John Thanks, Mike.
Thank you.
Our next question.
Comes from the line of Felipe Lamar of Citi. Please go ahead Felipe.
Hi, actually I think it's Joanne.
Citibank.
The question that I have is.
Multifold number one.
Do you think the adjusted EBITDA will be in 2024.
So we're not giving that level of guidance at this time, but I will say that when you expect improvement over 2023.
Continue to move toward pure profitability initiatives and so I think we actually demonstrated very nicely from the first quarter to the second quarter, our cost management efforts and will continue to implement more efficiencies that will drive that additional opportunity as we go forward much of that comes from our customer service functions and how we continue to streamline odd.
<unk> and improve the way, we interact with customers, while still keeping their satisfaction levels in mind and so stay tuned on what that will look like exactly in 2024, but you can expect improvement over this year.
Okay.
I have two questions. So bear with me. Please is there.
Chance that.
Youre going to be some hauling mobi into the pharmacy channel and I'll talk to my My second question then.
Maybe my third which is.
When you put together the numbers originally they were conservative.
There wasn't supposed to meet any upside from Moby.
We're now halfway through the year, those conservative numbers arent conservative and Youre getting downsides from Moby.
So help me reconcile that please.
Sure I'll start first with the pharmacy question, we are certainly using mobile as an opportunity to introduce ourselves to the pharmacy channel. So while I believe we will get some level of uptake there it probably won't be material in it and it won't be for quite some time as we built that capability. We're still very focused in fact, our number one priority today is.
We make sure that Dolby is on all of our <unk> contracts. Then we can move forward with the commercial launch unimpeded by that.
And we're very comfortable with the timing and that will be able to accomplish that.
And so when we think about the original number so the biggest change where we are today is really solidifying the timing of everything and so while we had expectations for timing for clearance preparing which we expected potentially in the first half with the back half launch.
It's the good into that the timing of when <unk> was approved and made it very challenging for the back half of the year and you have to think about the fact that Q4 being that you have any seasonal period with so many other activities going on on top of our CGM launches at the same time, it's important for us to stage. These launches appropriately and as John explained on Mobi is even.
More important because this is a whole new form factor that we want to make sure that we have well tested and market ready when we get to go to full commercial availability and so what we didn't know at the beginning of the year with the level of excitement that would come with them will be approval of the exact timing of it and how this with scale out amongst other our other product launches and so it creates.
The period of limited visibility.
We have taken a approach of reducing the risk as much as possible and the numbers, we've heard loud and clear up to now that people struggle to believe our numbers in the back half anyway, and we thought it was prudent to just do a complete reset take that risk off the table and factor in the level of impact <unk> could have not to say that it will have but there is the potential.
That it could cause significant disruption in the next two quarters, we wanted to see how that plays out before and make sure you and no. One gets ahead of US at this point and that's the basis for where we are today.
Okay. Thank you.
Thanks, Ron.
Thank you.
Our next question.
Comes from the line of Travis Steed Bank of America Securities.
Hi, This is Stephanie.
This.
I was hoping you could elaborate a little bit more on the EBITDA guide for this year.
Just wondering kind of what dynamics doctor into the breakeven for the full year.
With revenue the revenue reset down.
In the second half.
Sure. The only reason for the change in the EBITDA guide at this point with tied strictly to the change in the sales expectations.
They go hand in hand, we still expect that we will continue to be successful in our cost management efforts and so for now you can think about spending being roughly flat from where we are today through the back half of the year, we wont do hold back as needed to make sure. We pursue we move our R&D projects forward and we will also.
And as much on marketing if we think we need in order to continue driving the tandem awareness as well as the new product awareness and so with those factors in mind.
He brings EBITDA to we know we can be at least positive.
Thank you.
Our next question.
It comes from the line of Alex Nowak of Craig Hallum. Your line is open Alex.
Hey, great. Good afternoon, everyone. Just a question around the cost improvements that we should expect with Bobby on the supply side I think we know pretty well what the public is going to come in.
You said previously about 25% cheaper to manufacture, but what about on the cartridge side.
Just given the redesign there perhaps on the infusion set side.
Sure so from the pump side.
Just to be clear, we expect that to scale up and you reach those efficiencies over the course of the year from launches over the course of 2024, you'll begin to see improvement in gross margin.
The pump itself is about a 10% to 15% lower manufacturing costs. The cartridges are expected to have a greater than 20% reduction in manufacturing costs.
Benefit from that you likely won't see for a bit longer as it takes time to build in that installed base before you actually see it on the gross margin results and we do look forward to <unk>, becoming a bigger piece of the business that alone drives us more than halfway to our 65% margin target and I think it will it youll start to see it.
Okay.
Next year.
Okay. It makes sense and then I just want to clarify a question with regards to next year as you launch mortgages seven Libre three integration in 2020 forward just what additional spending will you need to make or are the investments that you've done over the last three years that really put you into a nice position here to leverage those expenses next year as we get out of the pausing dynamic and we really start.
These new products ramp.
And the way you can think about spending is much like you're seeing what's happening in the last quarter and what you would expect to see going forward is that we'll continue to prioritize investments in R&D. So we can move our product pipeline forward and everyone is well aware of what we have in the pipe that's coming down the road.
Also we will not be shy about investing in our marketing activities to ensure we're getting broad reach and make sure our voices loud and well heard especially in the timing where these therapies, causing dynamics, we want to make sure people know whats coming next from us.
But we do expect to have continued efficiencies the beginnings of those you saw this quarter will continue in the years to come tandem source, which you haven't spoken much about today, but it's one of our core products in launch right. Now is a great facilitator, it's the new platform and infrastructure that allows us to create even greater efficiencies with our customer service functions and so that's something that.
Youll continue to see year over year improvement or reduction in that cost to serve.
Understood I appreciate the update thank you.
Okay.
Thank you.
Our next question.
Comes from the line of Jayson Bedford of Raymond James.
Good afternoon.
Questions on the renewals.
But I think last quarter, you talked about the sequential move in U S. Renewals was similar to the sequential move in your shipments and so I guess, if I look at <unk> grew.
Pumps here, 12% sequentially is that a fair way to.
Think about the sequential move in renewals in <unk> and then just as a related question in terms of the U S. Revision here is there any way to parse out what was what's due to fewer new users versus a slowdown in renewals.
I'm sure I'll start with obviously the first question.
Our renewals perspective in the second quarter.
Obviously very proud to say that we continue to get great traction there and so from Q1 to Q2 to just to be clear we saw an increase both in new and renewal comverse the increase in renewals growing at a bit faster clip than the new pumper and worst capturing people at the same rates that we saw last year. So even before some of the challenges we saw in the back.
Half of 2022, we were inferring proving our renewal rates and continue that up until now and in fact, what we're seeing or we're capturing people I would think faster. So people are moving through the renewal cycle earlier than we have seen in years past.
And that's great because not only for the rest of this year, we have a number of increased opportunities from renewals as you think about 2024. It grows again from the 50000 people in the U S. We sell pumps to four years ago to more than 70000 next year. So it's great to see this traction.
The way, we thought about the guide for the back half of the year, it's a little bit different because with mobi, Amit Let me say this over and over and considering how what impact it might have.
We looked at the different drivers of our business. So competitive conversions, we look at MDI conversions and we looked at renewables and we considered the impact that <unk> may have on those three different populations and we don't necessarily think it's the same across the board, but we did take out what I would say, it's a healthy reduction across all three to factor in that regardless of where people are coming.
They may just wait for <unk> to be available to them in general availability early next year and so that's something that we took into consideration when we put together the guidance.
Thank you.
Thank you.
Please standby for our next question.
Which comes from the line of Danielle <unk> of UBS. Your question. Please Daniel.
Thank you good afternoon, everyone. Thanks, so much for taking the question.
I wanted to ask about what youre seeing in the.
Market like from a market growth perspective in the U S and internationally and if any of the caused any husky.
It has to do with any change in underlying insulin pump adoption from your perspective or do you still think that is.
And call it double digit growth market here in the U S. Thanks, so much.
Sure. So we have limited visibility right now to the entire market considering you only have one quarter with everyone, having released their numbers and we have more to come for this quarter.
We did come in within our expectations for Q2, So I think that suggests it's right in line with what we anticipated what that means for overall market growth, it's hard to say at this very point.
And with respect and I am speaking to the U S. More so they are right now in <unk>, two and the market is still big and growing we still see high demand for our products that we haven't seen any changes in the dynamics there but.
But we have taken some conservatism as we think about the back half of the year, just as John said earlier Jessica.
The space, how many people are in it new entrants and just being particularly cautious based on our learnings here in the U S.
Thank you.
Thank you.
Our next question.
Comes from the line of Joshua Jennings of Cowen.
Hi, This is Brian here for Josh Thanks for taking my questions.
First just a clarification can you address the inclusion or exclusion of U S. Maybe in that 10% growth outlook you provided for 2024 I'm assuming it's included in that number but just given the 23 guidance initially I wanted to confirm that.
And if I can will there be any other new product launches in 2024 apart from U S. Maybe.
So the way to think about 2024, which really that I would say the first inflection comes from all the products that we're launching right now so we're going to get.
Modest benefit in the remainder of 2023, just based on the timing and we will learn a lot more about the appetite they can drive for US next year. So I would say at this point.
We believe we can get continued growth.
Thinking about that 10% level, but I would not put it in the outstanding category, yet and as we continue to evaluate the opportunities or the traction we get on the products in the next six months it will inform us a great deal more about how do you factor in those expectations for 2024, and so we do expect they will all be available, but we want to be cautious in the meantime.
And set a minimum for expectations just to make sure we're managing people and keeping them in the right place for now and.
And Brian relative to <unk> 'twenty four I would just say that right now we're really focused on getting these four products to market.
2023, and I think that as we enter 2004 and our fourth quarter call, we'll probably talk more about what you expect in the 2004 timeframe Thats new.
Thank you.
Our next question comes from the line of Mathew Blackman of Stifel. Your question. Please Matthew.
Hi, This is colin on for Matt.
In light of the rumblings, you've heard from your O U S distributors and I appreciate you've likely been asked about competition.
In the various large markets, including the U K, but taking a step back can you give us a sense of the size and the growth of the UK pump market and where you think pump penetration at in the U K and these other large markets like France and Germany.
You said, 10% to 20% for EU broadly, but I assume that the U K, maybe closer to the U S. In terms of penetration any color there would be really helpful.
Sure so I'm not going to be able to provide a lot of color. We haven't given that level of detail and do not expect to be talking about any single market in terms of our O U S opportunity other than it's still a large market in fact, the type one population, where we operate is twice the size of the U S market.
That's the Underpenetrated, we have talked broadly about an average or a range of 10% to 20%. There are a few markets that are more similar to the U S. In terms of penetration, but many or most of it would take fall in the category of a lot of room to run until they get anywhere near where the U S is today and so we still think that.
That that is one of our greatest growth opportunities and.
The significant growth opportunity, which we intend to take advantage of these products that we're bringing to United States now certainly will be available.
S countries I'm not too distant future.
Okay, Great and I also wanted to ask one about the state of the U S commercial selling team in light of the current competitive environment multiple new product launches how are things progressing in the U S and what's your outlook for.
Either rep, count or where kind of the sales team going forward in light of the multiple new product launches you've got late in the year and into 2024.
Thank you well I would say they are incredibly excited they're motivated.
Really looking forward to getting their hands on these products and just getting out and talking to the physicians and their staff about it. So I'd say, it's a very motivated team right now.
I think that as far as head count goes we always evaluate that near the end of the year you haven't made anything specific.
I'll take a comment about this point in time, but we will look to the end of the year and see how we're doing.
And I think that again, I think thats, a very positive environment, we haven't seen any attrition and the team as I said, it's very motivated and we're excited to get this to market.
Thank you.
Thank you.
There appear to be no further questions in queue that does conclude tandem's 2023 second quarter earnings call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Sure.
Okay.
[music].
Okay.
[music].
Yes.
[music].